🔒 Premium: RW Johnson – The arrogance of ANC fiscal ignorance raises Venezuelan risk for SA

In today’s contribution for BizNews former Oxford Don RW Johnson draws on Maggie Thatcher’s oft-quoted quip: “The reason why socialism fails is that sooner or later you run out of spending other people’s money.” Alas, instead of her common sense being imprinted on young SA brains, Thatcher is often vilified here. Sad that.

RW’s article contrasts the reality of South Africa’s parlous financial situation with thought processes of undisciplined spendthrifts entrusted to take our nation’s important decisions. It’s the height of poor judgement by we, the voters. A bit like a trusting fool conned into lending their Platinum card to a cocaine addict.

Ahead of our interview later today, I’ve been reading Anthea Jeffery’s new book “Countdown to Socialism”. In it she helps us understand the root of ANC’s fiscal approach. This is shaped by its “National Democratic Revolution” template, a 1950s plan devised by the Soviet Union for newly independent states intended to be the vanguard for global spread of communism.

___STEADY_PAYWALL___

Despite creating widespread poverty and misery, the NDR is alive and well in Pretoria. Jeffery provides a cautionary tale: in the 1960s, oil-rich Venezuela had the fourth-highest per-capita income in the world. In 1999 Chavez and, on his death, Maduro introduced and then doubled down on Venezuela’s own NDR. In just two decades it turned the continent’s jewel into a basket case where 80% now live in poverty.

Next year, South African voters can remove the Treasury’s keys from our own NDR jockeys. If they don’t, odds will shorten on a Venezuelan repeat. When one actually reads policy documents of the Comrades, as RW and Jeffery do, it’s clear most in the ANC remain committed to its bankruptcy-inducing NDR. Believe it. Roll on 2024.

– Alec Hogg

*On a much happier note, the BizNews model portfolio is still going gangbusters. The monthly update webinar is at noon tomorrow. Look forward to having you join me then for our interactive discussion – as a Premium member your seat is booked. But you do need to register beforehand, here’s the link: https://zoom.us/webinar/register/WN_SFLRtrmrSvGwbcC3XOg98Q


ANC’s innumeracy can’t change SA’s fact – the money has run out

By RW Johnson

The ANC does not tell us what it is thinking. It is obvious, for example, that Mandela Day caused many to wonder what Mandela would make of today’s South Africa. He would certainly not be happy with what the ANC has wrought. This thought must have occurred to many in the ANC but the party celebrated Mandela Day without uttering a word on that subject. 

However, it is sometimes possible to read the smoke signals. This is such a moment.

First, the ANC national executive instructed the Finance Minister, Enoch Godongwana, to talk to the Reserve Bank to impress on it that some other way must be sought to fight inflation other than raising interest rates. Godongwana, to his credit, refused to do this, pointing out that the Reserve Bank was wholly independent. The NEC should have known this: it’s in the Constitution, after all. 

(Note that the NEC’s thinking, crudely put was: To hell with the Constitution, why can’t the ANC decide on interest rates ? This is a standard African nationalist response. It led Robert Mugabe, for example, to set prices for bread. He also attempted to set the value of the Zim dollar. This led to bakeries closing, hyperinflation etc.)

Read more: Nicholas Woode-Smith: The ANC’s deliberate failures – South Africa’s path to collapse

Second, Nkosasana Dlamini-Zuma, in her speech to the BRICS Youth Summit launched into a lengthy attack on the entire Bretton Woods system and in particular South Africa’s banks as part of it.  She said that the development policies imposed on the developing world by Bretton Woods constitute “a carefully constructed debt trap that co-opts our developmental aspirations and, under the cloak of inclusion, exploit (sic) our individual and collective repayment struggles”. 

She continued “We currently have a structural problem of a banking industry that is not only greatly concentrated and monopolised, but also in many ways does not serve our interests. Those who prefer us shipping raw materials will not fund our manufacturing plants, they will not fund a rail system…in South Africa we are forced to kneel before five banks. This represents some of the most concentrated banking systems in the world. The greater concentration of banking to (sic) the Big Five has clearly undermined accountability, hindered development, stifled competition and passed on the cost burden to citizens. Without control over finance and banking only those projects that converge with the interest of private interests (sic) will be funded…” 

Much of Dlamini-Zuma’s speech is incoherent and nonsensical. The period since 1945 – the Bretton Woods period – has, after all, seen a number of poor countries register striking gains: Japan, South Korea, Taiwan, Singapore, China, India, Vietnam, Indonesia, Chile, Mexico, Mauritius, Kenya, Botswana and Ivory Coast, to name just a few. None of them seems to have fallen into any “carefully constructed debt traps”. 

Second, if you include Capitec, as one surely must, South Africa has six big banks. This is far from being the world’s most concentrated banking system. Both Capitec and Investec are recent arrivals, which suggests that competition has not been stifled. Indeed, a lot of new banks have been launched in the last two years. At very most this is an (expanding) oligopoly, not a monopoly. What is clear is that Dlamini-Zuma wants state control over the whole banking and finance sector and that she sees the current banks as enemies.

What is this all about? As Michael Sachs has pointed out, there is a severe disjuncture between ANC policy and financial reality. The Treasury and the Finance Minister are desperately concerned to stop the national debt increasing. They fear, rightly, that current trends lead straight to a default and an IMF bail-out with a consequent loss of sovereignty and many of the ANC’s key policies thrown out by IMF administrators. 

Yet the ANC continues to push for a whole raft of big new spending projects. It wants the abolition of university fees, a BIG, NHI, a state bank, a state pharmaceutical company, a state shipping line etc. 

Just this week Blade Nzimande has announced the building of two new universities and nine new community colleges. And he is still struggling to make university education free. This is absurd. Unless they can charge fees all the present universities will collapse. Nzimande should really be closing a few of the weakest universities and reversing the “massification” policies which have flooded the universities with barely literate students who can’t possibly complete a degree course. 

One can imagine the rising anger and frustration of ANC ministers as they all push for these and other projects, only to be told in every case that “There’s no money for that”. But the more they push Godongwana, the more he’s forced to tell them the financial facts of life. 

Read more: How world sees us: Only thing keeping SA from total chaos is its private sector

Which are that:

  • (I) In order to pay down the debt South Africa, lacking any serious economic growth, needs to cut back existing spending programmes, not add any more.
  • (ii) The situation has been greatly exacerbated by rising interest rates since that has heavily increased the interest payments on our debt, cutting deeply into the budget.
  • (iii) It is no good going to the banks to ask for loans to fund government programmes, for the banks had analysed the financial situation well before the government did. They understand perfectly well the jam that the government has got itself into. Concern for their own viability prevents the banks from picking up the bill for the government’s fecklessness.
  • (iv) It’s actually worse than that because the banks, having bought up a large number of high-yielding government bonds, have now all decided that enough’s enough and that the government can’t afford any more debt. In other words, if the government wants to go still deeper into debt,  the banks are not going to finance it. At the same time foreigners have been net sellers of South African bonds.
  • (v) There has been a vast flood of funds out of the country as savers seek to protect themselves from declining asset values in South Africa. The net result is that this has shrunk the domestic savings pool so it’s going to be hard to find enough buyers for our bonds. It may well be that the only way to tempt them to buy is to offer them yet higher rates of interest. Which would bite even deeper into the budget and further increase the pressure for major cuts in government spending.

Clearly, a discussion along these lines has occurred in the Cabinet or the NEC (or probably both). Listening to it, the ANC mind-set, with its paranoid fixation with capitalist enemies, has clearly fastened on the banks. They are the ones telling the ANC that it can’t have what it wants and, indeed, telling it that it must do the opposite of what it wants. 

  • (vi) The ANC instinctively feels that this is insubordination, that the ANC ought to decide all these things. They should not be told by anyone else what they must do, And an already very difficult election is coming. If the ANC is to restrict its losses the last thing it can afford is to cut spending before the election. That is a true imperative. The banks keep saying they can’t do things because of “market forces” but that is just capitalist double-talk. The banks must do what they are told.

It is this last feeling that causes the NEC to “instruct” the Finance Minister to instruct the Reserve Bank not to put up interest rates. And the same feeling leads Dlamini-Zuma to demand state control of the entire financial system, banks and all. 

Margaret Thatcher had her own ideological axes to grind. But she once came out with the cutting observation that “The reason why socialism fails is that sooner or later you run out of spending other people’s money.” Undoubtedly, the ANC has reached just such a moment, and a bitter taste it has. The banks are just convenient whipping boys, but no amount of whipping will change these facts. 

Of course, the state could do as Dlamini-Zuma (and Julius Malema) want and nationalise all the banks and make them do what the ANC wants. But this would lead to the crash of the entire South African financial system, with the collapse of the currency, hyperinflation etc. In practice it would be a very short cut to an IMF bail-out. 

It’s not clear that Ramaphosa understands the situation. Not long ago he more than half-promised a BIG and he has long promised NHI.  But if Godongwana wants him to understand reality better he has only to point to the burnt out ruins of Parliament. When that fire happened Ramaphosa promised that rebuilding would happen right away. Eighteen months later there is no sign of any building activity. There’s no money, even for that.

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